Carbon performance and financial constraints: the role of climate change actions and governance quality in Asia-Pacific firms

Purpose This study primarily aims to examine the relationship between carbon performance and firms' financial constraints in the Asia-Pacific region. It further explores whether this association varies with firms' climate change actions and countries' governance quality. Design/methodology/approach This study uses data from 13 Asia-Pacific countries from 2014 to 2023 and employs a firm-fixed-effect panel data regression model to achieve its objectives. Findings The findings indicate a statistically significant negative association between carbon performance and firms' financial constraints. Subgroup analyses indicate that this association is more evident among firms in non-carbon-intensive industries and those that comply with GRI reporting standards. The study further shows that the association between carbon performance and financial constraints varies with firms' climate change actions and countries' governance quality. Specifically, the negative association is stronger among firms reporting more extensive climate change actions and in countries with higher government effectiveness, whereas the evidence related to the rule of law is comparatively weaker. The findings remain qualitatively consistent across supplementary sensitivity and robustness analyses. Originality/value This study positions carbon performance as an important non-financial dimension that is related to cross-firm variation in financial constraints in the Asia-Pacific context. Rather than relying on broad ESG or CSR composites, it focuses on emissions-based carbon efficiency and documents how the association with financial constraints varies with firms' climate change actions and countries' governance quality, an area that remains underexplored. By focusing on a climate-vulnerable but comparatively underexamined Asia-Pacific region, the study provides nuanced evidence on when carbon performance is more strongly associated with financial constraints.